Understanding Health Insurance Costs, Pt. 1 – Where You Live

Unless you’ve been on the moon or in a monastery all summer, you can’t have escaped the health care reform issue or the debates about how to really lower health insurance costs. One of the ideas that keeps floating to the surface is the so-called Interstate Option, which would let individual Americans purchase our health insurance across state lines, much the way we do car insurance. Right now we can’t because of the McCarran-Ferguson Act, passed in 1945, which granted states the right to regulate health plans within their borders, resulting in a hodgepodge of 50 (count ‘em, 50) different state regulations. While nothing prevents an insurance provider from operating in any state, the cost of obtaining 50 individual licenses to do so could be cost-prohibitive, as would the cost of providing the Cadillac care certain states mandate.

Large employers (like IBM or Ford) can self-insure their employee health care benefits, which exempts them from state regulations. But the rest of us are limited to the health insurance coverage that is offered in our particular state. Depending on where you live, your health insurance costs range from reasonable to astronomical. For example, according to an article written in June 2006 and posted in the Consumer-Driven Health Care section of the National Center for Policy Analysis website, a 25-year-old man in good health living in Kentucky with a $500 deductible paid about $960 in annual health insurance premiums. If he moved to New Jersey, his annual health insurance premiums skyrocketed to $5,880! The same article pointed out that an individual health insurance policy costing $1,692 in Iowa and $2,664 in Washington State would run $4,032 in Massachusetts.

What could possibly account for these wild discrepancies from state to state? Lack of competition. Because, under McCarran-Ferguson, every state’s health insurance market is protected from interstate competition, each state’s legislature can mandate that its licensed health insurance companies cover certain services that result in higher costs. For example, several states actually require health insurance companies to cover hair pieces, fertility treatment and marriage counseling – useful services, to be sure, but arguably not critical to a person’s health. If you live in one of these states, your health insurance premium reflects the high cost of providing such services. Insurance companies unwilling or unable to profitably provide state-mandated services simply pull up stakes. When shopping for health insurance, E-INSURE Services can connect you with a provider in your area. As competition and choices dwindle, health insurance costs typically go up.